KUALA LUMPUR: AME Real Estate Investment Trust's (AME Reit) recent plan to acquire four industrial properties in Iskandar Malaysia is seen as positive due to its strategic location and long-term leases, said RHB Research.
With a combined gross yield of seven per cent, strategic location within Iskandar Malaysia, and long-term leases, the firm is positive on the proposed acquisitions.
"The leases are for a period of five to ten years with built-in rental escalations between 2.9 per cent and 10 per cent per annum.
"There is also an option to renew for a further period of three to five years.
"A key risk would be a non-issuance of a Certificate of Completion and Compliance (CCC) for three of the properties, which could delay or terminate the sales and purchase agreement (SPAs)," it said.
RHB Research said the company's gearing would increase to 27 per cent from just 14.8 per cent as at the first quarter (Q1) financial year 2025 (FY25) following the completion of the acquisitions.
At that level, the firm estimates that the AME REIT would have a financing headroom of RM380 million before reaching the 50 per cent gearing limit.
"We adjust our FY26-to-FY27 earnings estimates by 3-4 per cent after factoring the acquisitions and the related financing costs," it said.
Meanwhile, RHB Research said AME Reit's first quarter FY25 core profit of RM8.9 million is in line with expectations at 24 per cent of the firm's full-year forecasts.
It said revenue grew eight per cent year on year (YoY), mainly from the contribution of Plot 16 Indahpura, which was acquired in October 2023, but dropped 1.0 per cent quarter on quarter (QoQ) as two properties were temporarily vacant before a new lease commenced in June.
"We upgrade our call to a buy as we turn more positive on its inorganic growth opportunities, on top of the long-term viability of existing properties.
"New target price of RM1.54 from RM1.42 previously," it added.